The president's budget hints at a coming battle over one kind of ag subsidy

When President Barack Obama said during his recent address to Congress that “in this budget, we will… end direct payments to large agribusinesses that don’t need them,” he set off a firestorm of speculation. Now that the budget outline has been published, we finally have an understanding of what he meant. Yes, as we suspected, he was indeed referring to a specific subsidy program called “direct payments.” Jill Richardson explains:

Direct payments are a result of the 1996 farm bill. Prior to that, subsidies were given based on need. If you couldn’t sell your crops at a price the government thought was fair, you got a subsidy to make up the difference…

If you own land where commodities were grown (by you or someone else) in the past, you get a direct payment whether you grow anything or not. You could do nothing, potentially, and still receive a direct payment. Does that sound stupid? I think so too.

Your direct payment is calculated on your “base acres.” They keep a running average of how much you grew on your land (or how much somebody grew on your land if it wasn’t you), and that yield determines how much you get in government cash. During the past farm bill debate, grain prices were high and farmers were doing well, but the direct payments kept flowing in.

As part of an effort to transition large farms from direct payments provided to owners of base acres to increased income from revenue derived from emerging markets for environmental services, the President’s Budget phases out direct payments over three years to farmers with sales revenue of more than $500,000 annually… Large farmers are well positioned to replace those payments with alternate sources of income from emerging markets for environmental services, such as carbon sequestration, renewable energy production, and providing clean air, clean water, and wildlife habitat.

This is consistent with what USDA Chief Tom Vilsack has been saying for a little while now — that he wants the “environmental benefits” of farming to accrue to farms in the form of cash. What we’re learning now is which program will be phased out in order to phase in so-called “ecological services” payments. It’s worth noting that overall the current subsidy regime remains pretty much intact — corn, soy, wheat, and cotton will still qualify for all sorts of other supports while “specialty crops,” i.e. fruits, vegetables and nuts, get, well, peanuts. Appropriately, the administration is targeting a program that has the weakest support even among farm-state politicians — not that it will be any easier to eliminate. The House Ag Committee chairman, Rep. Collin Peterson, is very clear on his unwillingness to cut a penny from subsidy programs.

However, don’t hold your breath for this one. The soonest it could happen is 2012 when the Farm Bill is scheduled for re-authorization. That’s just as well since no one has any idea how to value “ecological services” anyway — which is why the budget says that “the USDA will increase its research and analytical capabilities” in order to figure it all out. Thankfully, there’s a new USDA office charged with doing exactly that.

And the USDA isn’t alone in having its work cut out for it. Since no factory farm right now could qualify for any credits related to carbon sequestration, clean water or clean air, this proposal holds little value for them as they currently operate. The theory is that this new subsidy program will change the calculus. Wouldn’t that be something?